Business Loan Program Temporary Changes; Paycheck Protection Program – Certain Eligible Payroll Costs
Summary
Interim final rule of the Small Business Administration, Docket Number SBA-2020-0040, giving guidance on certain eligible payroll costs under the Paycheck Protection Program. Fishing boat owners may count compensation paid to crewmembers described in Section 3121(b)(20) of the Internal Revenue Code, up to $100,000 annualized, as payroll costs in their loan applications, treating the relationship as analogous to a partnership. If a crewmember obtains a separate loan and seeks forgiveness based on that compensation, the owner cannot also obtain forgiveness for it. Loans to fishing boat owners are more likely to face loan review. The agency cited its authority to guarantee loans expiring on June 30, 2020.
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SMALL BUSINESS ADMINISTRATION
13 CFR Part 120
[Docket Number SBA-2020-0040]
RIN [3245-AH54]
Business Loan Program Temporary Changes; Paycheck Protection Program – Certain
Eligible Payroll Costs
AGENCY: U.S. Small Business Administration.
ACTION: Interim final rule.
SUMMARY: On April 2, 2020, the U.S. Small Business Administration (SBA) posted on its
website an interim final rule relating to the implementation of Sections 1102 and 1106 of the
Coronavirus Aid, Relief, and Economic Security Act (CARES Act or the Act) (published in the
Federal Register on April 15, 2020). Section 1102 of the Act temporarily adds a new product,
titled the “Paycheck Protection Program,” to the U.S. Small Business Administration’s (SBA’s)
7(a) Loan Program. Subsequently, SBA issued a number of interim final rules implementing the
Paycheck Protection Program. This interim final rule supplements the previously posted interim
final rules by providing additional guidance on certain eligible payroll costs.
DATES: Effective Date: The provisions in this interim final rule are effective [INSERT DATE
OF FILING AT THE OFFICE OF THE FEDERAL REGISTER].
Comment Date: Comments must be received on or before [INSERT DATE 30 DAYS AFTER
DATE OF PUBLICATION IN THE FEDERAL REGISTER].
ADDRESSES: You may submit comments, identified by number SBA-2020-0040 through the
Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting
comments.
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SBA will post all comments on www.regulations.gov. If you wish to submit confidential
business information (CBI) as defined in the User Notice at www.regulations.gov, please send an
email to ppp-ifr@sba.gov. Highlight the information that you consider to be CBI and explain
why you believe SBA should hold this information as confidential. SBA will review the
information and make the final determination whether it will publish the information.
FOR FURTHER INFORMATION CONTACT: A Call Center Representative at 833-572-0502,
or the local SBA Field Office; the list of offices can be found at https://www.sba.gov/tools/local-
assistance/districtoffices.
SUPPLEMENTARY INFORMATION:
I. Background Information
On March 13, 2020, President Trump declared the ongoing Coronavirus Disease 2019
(COVID-19) pandemic of sufficient severity and magnitude to warrant an emergency declaration
for all States, territories, and the District of Columbia. With the COVID-19 emergency, many
small businesses nationwide are experiencing economic hardship as a direct result of the Federal,
State, tribal, and local public health measures that are being taken to minimize the public’s
exposure to the virus. These measures, some of which are government-mandated, have been
implemented nationwide and include the closures of restaurants, bars, and gyms. In addition,
based on the advice of public health officials, other measures, such as keeping a safe distance
from others or even stay-at-home orders, have been implemented, resulting in a dramatic
decrease in economic activity as the public avoids malls, retail stores, and other businesses.
On March 27, 2020, the President signed the Coronavirus Aid, Relief, and Economic
Security Act (the CARES Act) (Pub. L. 116-136) to provide emergency assistance and health
care response for individuals, families, and businesses affected by the coronavirus pandemic.
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The Small Business Administration (SBA) received funding and authority through the CARES
Act to modify existing loan programs and establish a new loan program to assist small
businesses nationwide adversely impacted by the COVID-19 emergency.
Section 1102 of the CARES Act temporarily permits SBA to guarantee 100 percent of 7(a)
loans under a new program titled the “Paycheck Protection Program.” Section 1106 of the
CARES Act provides for forgiveness of up to the full principal amount of qualifying loans
guaranteed under the Paycheck Protection Program (PPP).
On April 24, 2020, the President signed the Paycheck Protection Program and Health Care
Enhancement Act (Pub. L. 116-139), which provided additional funding and authority for the
PPP. On June 5, 2020, the President signed the Paycheck Protection Program Flexibility Act of
2020 (Flexibility Act) (Pub. L. 116-142), which changed provisions of the PPP relating to the
maturity of PPP loans, the deferral of PPP loan payments, and the forgiveness of PPP loans.
This interim final rule addresses payroll costs that may be included on a PPP loan application
submitted by certain boat owners or operators that are engaged in catching fish or other forms of
aquatic animal life (fishing boat owners) and that have hired one or more crewmembers who are
regarded as independent contractors or otherwise self-employed for certain federal tax purposes
under 26 U.S.C. § 3121(b)(20) of the Internal Revenue Code (the Code). A crewmember may be
described in Section 3121(b)(20) of the Code if the fishing boat on which he or she works has an
operating crew that is normally made up of fewer than 10 individuals and the crewmember
receives as compensation for his or her work a share of the boat’s catch or of the proceeds from
the sale of the catch, in an amount that depends on the amount of the catch. Such a crewmember
generally may not receive additional cash remuneration or other compensation for his or her
services with respect to the fishing boat. A fishing boat owner must report compensation paid to
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such a crewmember on Box 5 of IRS Form 1099-MISC. The First Interim Final Rule, posted on
April 2, 2020, provided that because independent contractors have the ability to apply for a PPP
loan on their own, they do not count for purposes of another applicant’s PPP loan calculation. 85
FR 20811, 20813 (April 15, 2020). Because crewmembers described in Section 3121(b)(20) of
the Code are treated as independent contractors or otherwise self-employed for certain federal
tax purposes, fishing boat owners have faced uncertainty about whether to report payments to
such crewmembers as a payroll cost on their PPP loan applications.
On April 14, 2020, SBA, in consultation with Treasury, posted an interim final rule
explaining that the self-employment income of the general active partners of a partnership could
be reported as a payroll cost, up to $100,000 annualized, on a PPP loan application filed by or on
behalf of the partnership.1 85 FR 21747, 21748 (April 20, 2020). The Administrator, in
consultation with the Secretary, has determined that the relationship of a fishing boat owner and
a crewmember described in Section 3121(b)(20) of the Code is analogous to a joint venture or
partnership. For example, the fishing boat owner and crewmembers each contribute labor or
resources to a common commercial enterprise, and the owner and crewmembers share in the
enterprise’s profits. In order to harmonize SBA’s interim final rule regarding partnerships with
SBA’s interim final rule described above regarding independent contactors, the Administrator, in
consultation with the Secretary, has determined that in the event of a conflict (i.e., a case where
one or more partners in a partnership are treated as independent contractors for tax purposes), the
rules regarding partnership will govern. Accordingly, as described below, this interim final rule
(1) provides that a fishing boat owner may include compensation reported on Box 5 of Form
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Guidance describing how to calculate partnership PPP loan amounts and defining the self-employment income of
partners was posted on April 24, 2020 (see How to Calculate Maximum Loan Amounts, Question 4, at
https://www.sba.gov/sites/default/files/2020-06/How-to-Calculate-Loan-Amounts-508_0.pdf).
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1099-MISC and paid to a crewmember described in Section 3121(b)(20) as a payroll cost in its
PPP loan application, and (2) addresses a fishing boat owner’s eligibility to obtain loan
forgiveness of payroll costs paid to a crewmember who has obtained his or her own PPP loan.
II. Comments and Immediate Effective Date
This interim final rule is effective without advance notice and public comment because
Section 1114 of the CARES Act authorizes SBA to issue regulations to implement Title I of the
Act without regard to notice requirements. In addition, SBA has determined that there is good
cause for dispensing with advance public notice and comment on the grounds that that it would
be contrary to the public interest. Specifically, advance public notice and comment would defeat
the purpose of this interim final rule given that SBA’s authority to guarantee PPP loans expires
on June 30, 2020. These same reasons provide good cause for SBA to dispense with the 30-day
delayed effective date provided in the Administrative Procedure Act (APA). See 5 U.S.C.
553(b)(B). Although this interim final rule is effective on or before date of filing, comments are
solicited from interested members of the public on all aspects of the interim final rule, including
Section III below. These comments must be submitted on or before [INSERT DATE 30 DAYS
AFTER DATE OF PUBLICATION IN THE FEDERAL REGISTER]. The SBA will consider
these comments and the need for making any revisions as a result of these comments.
III. Paycheck Protection Program – Additional Guidance on Certain Eligible Payroll
Costs
Overview
The CARES Act was enacted to provide immediate assistance to individuals, families, and
organizations affected by the COVID-19 emergency. Among the provisions contained in the
CARES Act are provisions authorizing SBA to temporarily guarantee loans under a new 7(a)
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loan program titled the “Paycheck Protection Program.” Loans guaranteed under the Paycheck
Protection Program (PPP) will be 100 percent guaranteed by SBA, and the full principal amount
of the loans may qualify for loan forgiveness. The purpose of this interim final rule is to provide
additional guidance concerning payroll costs that may be reported in connection with certain PPP
loan and loan forgiveness applications.
1. Calculation of Payroll Costs of Certain Fishing Boat Owners
May fishing boat owners include payroll costs in their PPP loan applications that are
attributable to crewmembers described in Section 3121(b)(20) of the Internal Revenue Code?
Yes. The Administrator, in consultation with the Secretary, has determined that the
relationship of a crewmember described in Section 3121(b)(20) of the Internal Revenue Code
(Code) and a fishing boat owner or operator (fishing boat owner) is analogous to a joint
venture or partnership for purposes of the PPP. As a result, a fishing boat owner may include
compensation reported on Box 5 of IRS Form 1099-MISC and paid to a crewmember
described in Section 3121(b)(20) of the Code, up to $100,000 annualized, as a payroll cost in
its PPP loan application. The Administrator, in consultation with the Secretary, has
determined that this treatment is appropriate to effectuate the purposes of the CARES Act to
provide assistance to eligible PPP borrowers, including business concerns that operate as
partnerships, affected by the COVID-19 emergency.
2. Calculation of Certain Payroll Costs Eligible for Loan Forgiveness
May a fishing boat owner include as payroll costs in its application for loan forgiveness any
compensation paid to a crewmember who received his or her own PPP loan and is seeking
forgiveness for amounts of compensation the crewmember received for performing services
described in Section 3121(b)(20) of the Code with respect to that owner’s fishing boat?
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No. If a fishing boat crewmember obtains his or her own PPP loan and seeks forgiveness of
that loan based in part on compensation from a particular fishing boat owner, the fishing boat
owner cannot also obtain PPP loan forgiveness based on compensation paid to that same
crewmember. This restriction applies only if the crewmember is performing services
described in Section 3121(b)(20) of the Code for the particular fishing boat owner. The
Administrator, in consultation with the Secretary, has determined that this restriction is
necessary to prevent fishing boat owners and crewmembers from claiming forgiveness for
the same payroll costs (for the owner’s PPP loan, the compensation to a specific
crewmember; for the crewmember’s PPP loan, the compensation from the owner to that
crewmember). As a result, only the crewmember’s PPP loan is eligible for forgiveness, and
the owner may not obtain forgiveness for any payroll costs paid to the crewmember. The
fishing boat owner is responsible for determining whether any of its crewmembers during the
covered period for loan forgiveness received their own PPP loans. Due to the increased risk
of duplicate payroll costs, PPP loans to fishing boat owners are more likely to be subject to
an SBA loan review.
3. Additional Information
SBA may provide further guidance, if needed, through SBA notices that will be posted on
SBA’s website at www.sba.gov. Questions on the Paycheck Protection Program may be directed
to the Lender Relations Specialist in the local SBA Field Office. The local SBA Field Office
may be found at https://www.sba.gov/tools/local-assistance/districtoffices.
Compliance with Executive Orders 12866, 12988, 13132, 13563, and 13771, the
Paperwork Reduction Act (44 U.S.C. Ch. 35), and the Regulatory Flexibility Act (5 U.S.C.
601-612).
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Executive Orders 12866, 13563, and 13771
This interim final rule is economically significant for the purposes of Executive Orders
12866 and 13563, and is considered a major rule under the Congressional Review Act. SBA,
however, is proceeding under the emergency provision at Executive Order 12866 Section
6(a)(3)(D) based on the need to move expeditiously to mitigate the current economic conditions
arising from the COVID-19 emergency. This rule’s designation under Executive Order 13771
will be informed by public comment.
Executive Order 12988
SBA has drafted this rule, to the extent practicable, in accordance with the standards set forth
in Section 3(a) and 3(b)(2) of Executive Order 12988, to minimize litigation, eliminate
ambiguity, and reduce burden. The rule has no preemptive or retroactive effect.
Executive Order 13132
SBA has determined that this rule will not have substantial direct effects on the States, on the
relationship between the National Government and the States, or on the distribution of power and
responsibilities among the various layers of government. Therefore, SBA has determined that
this rule has no federalism implications warranting preparation of a federalism assessment.
Paperwork Reduction Act, 44 U.S.C. Chapter 35
SBA has determined that this rule will not impose new or modify existing recordkeeping or
reporting requirements under the Paperwork Reduction Act.
Regulatory Flexibility Act (RFA)
The Regulatory Flexibility Act (RFA) generally requires that when an agency issues a
proposed rule, or a final rule pursuant to Section 553(b) of the APA or another law, the agency
must prepare a regulatory flexibility analysis that meets the requirements of the RFA and publish
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such analysis in the Federal Register. 5 U.S.C. 603, 604. Specifically, the RFA normally
requires agencies to describe the impact of a rulemaking on small entities by providing a
regulatory impact analysis. Such analysis must address the consideration of regulatory options
that would lessen the economic effect of the rule on small entities. The RFA defines a “small
entity” as (1) a proprietary firm meeting the size standards of the Small Business Administration
(SBA); (2) a nonprofit organization that is not dominant in its field; or (3) a small government
jurisdiction with a population of less than 50,000. 5 U.S.C. 601(3)–(6). Except for such small
government jurisdictions, neither State nor local governments are “small entities.” Similarly, for
purposes of the RFA, individual persons are not small entities.
The requirement to conduct a regulatory impact analysis does not apply if the head of the
agency “certifies that the rule will not, if promulgated, have a significant economic impact on a
substantial number of small entities.” 5 U.S.C. 605(b). The agency must, however, publish the
certification in the Federal Register at the time of publication of the rule, “along with a statement
providing the factual basis for such certification.” If the agency head has not waived the
requirements for a regulatory flexibility analysis in accordance with the RFA’s waiver provision,
and no other RFA exception applies, the agency must prepare the regulatory flexibility analysis
and publish it in the Federal Register at the time of promulgation or, if the rule is promulgated in
response to an emergency that makes timely compliance impracticable, within 180 days of
publication of the final rule. 5 U.S.C. 604(a), 608(b).
Rules that are exempt from notice and comment are also exempt from the RFA requirements,
including conducting a regulatory flexibility analysis, when among other things the agency for
good cause finds that notice and public procedure are impracticable, unnecessary, or contrary to
the public interest. SBA Office of Advocacy guide: How to Comply with the Regulatory
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Flexibility Act, Ch.1. p.9. Accordingly, SBA is not required to conduct a regulatory flexibility
analysis.
Jovita Carranza,
Administrator.
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